MCA Warns Public Against High-Return Promises by Non-Compliant Nidhi Companies.
New Delhi:
The Ministry of Corporate Affairs (MCA) has issued an advisory cautioning the public against making investment decisions based solely on promises of unusually high returns by Nidhi Companies. The ministry has urged prospective depositors to conduct proper background checks and independently verify the regulatory status of such companies before depositing money.
The advisory follows the MCA’s examination of applications filed in Form NDH-4, during which the ministry found that several companies claiming to operate as Nidhi Companies were not fully complying with applicable provisions of the Companies Act and the Nidhi Rules. The ministry also noted that some companies had failed to submit their mandatory NDH-4 applications within the prescribed timeframe.
Under the applicable rules, every company seeking to function as a Nidhi is required to file an application in Form NDH-4 to be declared or recognised as a Nidhi by the Central Government.
The MCA has specifically cautioned the public against relying on agents, informal assurances or promises of unusually high returns. Individuals are advised to independently verify whether a company has been formally declared as a Nidhi and to carefully examine the terms and conditions before making any financial commitment.
A key concern highlighted by the ministry is that deposits accepted by Nidhi Companies are not insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC). Consequently, in the event of company failure or fraud, recovery of deposited money may be difficult or incomplete.
Nidhi Companies are mutual-benefit companies regulated by the MCA under the Companies Act, 2013 and Nidhi Rules, 2014. They are permitted to accept deposits from and provide loans to their members, subject to the applicable legal framework.
The regulatory framework was strengthened through amendments to Section 406 of the Companies Act and the Nidhi Rules, effective from August 15, 2019. These amendments reintroduced the requirement for companies to be declared as Nidhis by the Central Government.
According to the MCA, only 395 companies have been declared as Nidhis by the Central Government under the relevant provisions of the Companies Acts as of the date of the advisory. The ministry has made the list of active Nidhi Companies available on its official portal for public verification.
The MCA has advised members of the public to verify a company’s status through the official MCA records before making deposits and to exercise particular caution when confronted with offers promising exceptionally high returns.
